CHICAGO - With 26 days to go before Republicans take over the Illinois General Assembly, politicians started haggling this week over the fate of school funding in Illinois and Chicago.

Lee Daniels, a suburban Chicago Republican set to become speaker of the house, fired the starter gun Wednesday, proposing that 36% of all new state revenues b-b allocated for education.

"By allocating a minimum amount of funding automatically to schools, we can restore sanity to the budgeting process for local administrators," he told a government watchdog group.

But sanity may be hard to come by in the next six months. In addition to looking at statewide education finance reforms, lawmakers must also address fiscal problems in the Chicago Public Schools. School officials are predicting a $300 million shortfall next year, when proceeds from $427 million of general obligation bonds issued to bail out the school system through 1994 will run out.

The state authorized the Chicago School Finance Authority to issue the bonds last fall to bridge a $298 million budget gap for fiscal 1994 and a projected deficit for fiscal 1995. But state lawmakers insist it won't happen again even though the deficit has grown even larger.

"I hope they realize there is no pot of gold in Springfield waiting for them," said Mark Gordon, a spokesman for Senate President James (Pate) Philip, R-Wood Dale. He said the school board should feel more pressure to address its own budget problems because its allies in the Democratic Party lost control of the Illinois House Nov. 8.

Gordon said the state gave Chicago school officials until June 1995 to hold a property tax referendum in the city and prove the city would shoulder more of the education burden.

"We've seen no indication from the school board that they'll do that," said Gordon. "We have on several occasions reminded them of this, and asked what their plans were, and they've been non-responsive."

Though state lawmakers are urging Chicago school officials to raise their property tax levy, Richard Laine of the Illinois State Board of Education noted that Chicago's school levy is slightly above the statewide average.

Nevertheless, the Chicago School Board is getting an early start on its budget for fiscal 1996, which starts Sept. 1, and union contract negotiations. The board's budget committee met Wednesday to start crunching numbers and putting together a legislative agenda. But it may not be the agenda GOP leaders are looking for, judging by remarks from Chicago School Board President D. Sharon Grant.

Revenue issues should be considered state issues, not city issues," Grant said in response to Daniels' speech.

A spokeswoman for Mayor Richard M. Daley weighed in this week with a similar comment. "The mayor's position has always been that the state has to uphold its responsibility to provide fair funding for the schools. School districts all over Illinois have experienced financial difficulties, so any solution has to be at the state level," said Noelle Gaffney.

But city and state leaders do share some common ground. The incoming speaker suggested Wednesday he wants to do away with unfunded state mandates in the first 60 days of the legislative session. Grant applauded him.

"The last time we had fiscal crisis, we were paying for $420 million of unfunded [state and federall mandates. If we hadn't had to deal with those mandates, we would have had a balanced budget."

Daniels also refuted reports that GOP leaders want to break up the Chicago Public School District into eight separate entities any time soon.

"Much has been discussed in the media on this issue and it will be given serious consideration, but I honestly don't see this happening this session," said Daniels.

Also on the back burner is a proposal to dramatically overhaul the state's school finance system. The proposal is modelled after a constitutional amendment Michigin voters passed this March to fundamentally change the state's school finance system. Under the new system, property taxes have been reduced and the state is now paying for more education costs, mostly through an increase in the state sales tax.

"There is nothing on the table right now to do anything with this," said Gordon. "This is a long-range plan, and something to consider, but I don't anticipate anything in the foreseeable future."

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